Shifting into the lean and slippered pantaloon? …...2014/05/20 · pantaloon? Employment in the...

© Institute for Fiscal Studies

Shifting into the lean and slippered pantaloon? Employment in the sixth age Gemma Tetlow

Presentation at the Department for Work and Pensions

20th May 2014

Recent evidence on employment of older people

• Trends in employment rates

• Who is more (and less) likely to be in work?

– Gender, health, education level, wealth, family circumstances

• Transitioning to retirement:

– How does it happen?

– What precipitates (or delays) it?

• In particular:

– Changes in hours and importance of self-employment

– Response to financial and other incentives

– Effect of some policy changes: reforms to disability-related benefits, increasing the female state pension age


Employment rates of older men have been increasing since the mid-1990s

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10%

20%

30%

40%

50%

60%

70%

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90%

100%

1968 1973 1978 1983 1988 1993 1998 2003 2008

50-54

55-59

60-64

65-69

© Institute for Fiscal Studies Source: Figure 1.1, Banks, Emmerson and Tetlow (2014).

% of men in employment, by age group

Employment rates of older women have increased even more substantially

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30%

40%

50%

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100%

1968 1973 1978 1983 1988 1993 1998 2003 2008

50-54

55-59

60-64

65-69

© Institute for Fiscal Studies Source: Figure 1.1, Banks, Emmerson and Tetlow (2014).

% of women in employment, by age group

These trends have contributed to very stable fraction of adult population being in labour force

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10%

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50%

60%

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1975 1980 1985 1990 1995 2000 2005 2010

Men, 65+

Women, 65+

Men, 16-64

Women, 16-64

All, 16+

© Institute for Fiscal Studies Source: Author’s calculations using Labour Force Survey (1975-2012).

% of people in the labour force

Employment rates are strongly correlated with individual characteristics/circumstances

• Education

• Wealth

• Health


Definition of variables

• Using data from the English Longitudinal Study of Ageing (ELSA)

• Education

– Low = left school at or before compulsory school leaving age

– Mid = left full-time education after CSL but before age 19

– High = left full-time education at age 19 or older

• Wealth

– Total household non-pension wealth

– Quintiles defined within each 5-year age group

• Health

– Index estimated as first principal component from analysis of over 20 indicators of objective and subjective health

– Quintiles defined across all age groups

• Part-time work: less than 35 hours per week (usual hours)


More highly educated are more likely to work

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100% Low

Mid

Hig

h

Low

Mid

Hig

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Low

Mid

Hig

h

Low

Mid

Hig

h

Low

Mid

Hig

h

50-54 55-59 60-64 65-69 70-74

Part-time

Full-time


% of men working, 2012–13

Source: Chandler and Tetlow (forthcoming).

More highly educated are more likely to work

0%

10%

20%

30%

40%

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100% Low

Mid

Hig

h

Low

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Low

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Hig

h

Low

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Hig

h

Low

Mid

Hig

h

50-54 55-59 60-64 65-69 70-74

Part-time

Full-time


% of women working, 2012–13


Lowest and highest wealth most likely to be out of work before the state pension age

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oore

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Ric

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Ric

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Ric

hest

50-54 55-59 60-64 65-69 70-74

Part-time

Full-time




Employment is strongly related to health

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100% W

ors

t health

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3

4

Be

st h

ea

lth

Wors

t health

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3

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Best health

Wors

t health

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4

Best health

Wors

t health

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3

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Best health

55-59 60-64 65-69 70-74

Part-time

Full-time




Employment rates are strongly correlated with individual characteristics/circumstances

• Education

– More highly educated are more likely to be in work

– Especially beyond state pension age

• Wealth

– Before state pension age: “inverse-U” relationship

– After state pension age: wealthier more likely to be in work

• Health

– Healthier more likely to be in work

• Employment rates of some groups already much lower than average by age 50

– Understanding/addressing low participation rates for these groups will require looking at behaviour pre-50

– Least healthy, low educated women, lowest wealth


Moving into retirement

• How do people transition from “work” to “retirement”?

– How important is part-time work?

– How important is self-employment?

– Do workers move jobs in order to reduce their hours of work?

• When do people exit the labour force?

– What factors influence this?

– Are different factors important for different people?


Part-time work and self-employment play a significant role in the retirement pathway...

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100%

0 +2 +4 +6 +8 +10

Years since 2002–03

Not working

Self-employed

Part-time

Full-time


Subsequent employment trajectories for men aged 50–54 working

full-time in 2002–03


...with part-time work being more important for women

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100%

0 +2 +4 +6 +8 +10


Not working

Self-employed

Part-time

Full-time


Subsequent employment trajectories for women aged 50–54 working

full-time in 2002–03


How flexible is the UK labour market?

• Reducing hours of work is likely to be easier in a flexible labour market

– i.e. variety of “job packages” available

• Indicator of flexibility: are people able to change hours within the same job or do they change jobs to achieve reduced hours?


– Waves 1–5 (2002/03 to 2010/11)

– Focus on those who work in consecutive waves

– Reduction in hours defined as usual hours being at least 5 hours per week shorter than reported in previous wave


Reducing hours of work is associated with moving jobs...

% Men

50–59

Women

50–59

Low

educated

Mid

educated

High

educated

Stayers, no reduction 60.9 65.6 65.9 65.3 58.7

Movers, no reduction 13.9 13.3 12.1 14.1 12.3

Stayers, reduction 16.8 14.7 14.4 13.5 20.2

Movers, reduction 8.5 6.5 7.6 7.1 8.8

100 100 100 100 100

P(Move | No reduction) 0.19 0.17 0.16 0.18 0.17

P(Move | reduction) 0.34 0.31 0.35 0.34 0.30

P(Reduce | No move) 0.22 0.18 0.18 0.17 0.26

P(Reduce | move) 0.38 0.33 0.38 0.33 0.42


Job and hours changes among those who stay in work

Source: Banks, Blundell and Emmerson (2012).

...this result is robust to controlling for other characteristics

Men Women Low

educated

Mid

educated

High

educated

Any job change –2.03 ** –0.74 –1.51 –1.51* –0.99

Change employer –0.91 –1.83** –2.66** –0.53 –1.33

Move to self-empl –5.28*** –3.00** 1.89 –0.25 –9.22***


OLS regression of change in hours of work (among those who

remain in work)

Notes: Each column reports the results from a separate OLS

regression. Also control for age, sex, marital status, education, health

and physical nature of job. * indicates significance at the 10% level; **

at 5%; *** at 1%.

Source: Banks, Blundell and Emmerson (2012).

How flexible is the UK labour market?

• Reducing hours of work is likely to be easier in a flexible labour market

– i.e. variety of “job packages” available

• Indicator of flexibility: are people able to change hours within the same job or do they change jobs to achieve reduced hours?


– Waves 1–5 (2002/03 to 2010/11)

– Focus on those who work in consecutive waves

– Reduction in hours defined as usual hours being at least 5 hours per week shorter than reported in previous wave

• Moving jobs is significantly associated with reducing hours of work: suggests labour market has some rigidities

– Self-employment particularly important for high educated in reducing hours of work


What factors precipitate labour force exit?

• Numerous factors are known to be important

– Health

– Financial incentives

– Family circumstances: including joint retirement of couples

– Reaching state pension age

– Demand-side factors


Least healthy exit work more quickly

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10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 +2 +4 +6 +8 +10


Best health

4

3

2

Worst health

© Institute for Fiscal Studies Source: Chandler and Tetlow (forthcoming).

Employment rates in subsequent years, among those initially working

(men, initially aged 50–54)

Least healthy exit work more quickly

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10%

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50%

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0 +2 +4 +6 +8 +10


Best health

4

3

2

Worst health

© Institute for Fiscal Studies Source: Chandler and Tetlow (forthcoming).

Employment rates in subsequent years, among those initially working

(women, initially aged 50–54)

Financial incentives matter

• Pensions (state and private) provide incentives to exit work at specific points

• Stock and Wise (1990) proposed the “option value” approach to modelling these incentives

– Basic idea: want to continue working if it gives you the “option” of accruing greater pension rights that are worth more than any pension foregone by continuing to work/not draw

• Estimated this model using ELSA data (2002/03 to 2010/11)

– Outcome of interest: leaving paid work between t and t+2

– As a function of: period t characteristics and forward-looking option value measured in period t


Forward-looking financial incentives matter

Marginal effect Standard error

Option value –0.006*** 0.001

Health index (linear) –0.020*** 0.002

Couple 0.028*** 0.009

Partner working –0.041*** 0.008

Net wealth 0.002 0.004

Low education –0.024** 0.010

Mid education –0.016 0.010

Self-employed –0.037*** 0.010


• 1 s.d. increase in option value reduces 1-year retirement probability by 2.8 ppts (baseline probability = 8.6%)

• Some evidence that response to financial incentives is different across health groups: exploring further in ongoing work

Probit regression of leaving work between t and t+2

Source: Table 4.1, Banks, Emmerson and Tetlow (2014).

What do we know about the effect of policy changes?

Two examples:

1. Reforms to disability-related benefits

2. Increasing the female state pension age


Reforms to disability-related benefits

• 1995: Incapacity Benefit replaced Invalidity Benefit

– Less generous to new claimants

– “Own occupation” test replaced with “any occupation” test

– Principally reduced on-flow

• 2003 onwards: Pathways to Work and Employment Support Allowance

– Increased conditionality

– Increased support

– Increased financial incentives to return to work

– Aimed to increase off-flow


Increases in employment rates coincide with policies that reduced disability benefit claiming

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1968 1973 1978 1983 1988 1993 1998 2003 2008

% w

ork

ing

% r

eceiv

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dis

ab

ilit

y b

en

efi

ts

% IVB/IB/ESA, ages 55-59 % IVB/IB/ESA, ages 60-64

% working, ages 55-59 % working, ages 60-64

© Institute for Fiscal Studies Source: Figures 1.1 and 2.3, Banks, Emmerson and Tetlow (2014).

% of men receiving disability benefits (LH axis) and in employment (RH axis)

Increasing the female state pension age

• Started to increase from 6 April 2010

– Affects women born after 5 April 1950

• Not only affects age at which women can start to receive state pension

– Knock-on effects on other aspects of tax and benefit system: including employee National Insurance and Pension Credit

• Receipt of state pension income is unaffected by level of earnings

– In theory, decision to leave work and decision to start claiming state pension should be independent

– Effect of increasing SPA on employment rates could have been small?

• What effect did it have in practice?


Employment of 60 year old women has risen

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60%

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Em

plo

ym

en

t ra

te

age 56

age 57

age 58

age 59

age 60

age 61

age 62

© Institute for Fiscal Studies Source: Figure 2.2, Cribb, Emmerson and Tetlow (2013).

Employment rate among 60 year old women estimated to have increased by 7.3ppts

• Using data up to 2012 Q2

– Female state pension age had risen to age 61

• Difference-in-differences estimation strategy

– Controlling for underlying differences between different cohorts and any common time trends/shocks

• Employment rate of 60 year old women increased by 7.3 ppts

• Employment rate of affected women’s husbands also increased

– By 4.2 ppts among husbands aged 55–64

– Evidence of complementarities in leisure

© Institute for Fiscal Studies Source: Cribb, Emmerson and Tetlow (2013).

...employment of 61 year old women seems to be rising too

0%

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Em

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age 56

age 57

age 58

age 59

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age 62

© Institute for Fiscal Studies Source: Author’s calculations using Labour Force Survey (2003-2012).

Summary (1)

• Employment rates of older people have been increasing since mid-1990s

• Less likely to be in work are:

– Women: although their employment rates are catching up to men’s

– Lower educated

– Less healthy: labour force exit happens before age 50 for those in the worst health

– Relationship between wealth and work changes at SPA

• Transitioning to retirement

– Significant minority of full-time workers experience periods of part-time work and/or self-employment before retirement

– Part-time work especially prevalent among women

– Self-employment more common among men


Summary (2)

• Many workers who reduce their hours do so by changing job

– Suggests some rigidity in the labour market?

– For high educated, switch to self-employment particularly important for reducing hours

• Find evidence that financial incentives to retire do matter

– 1 s.d. increase in option value reduces 1-year retirement probability by 2.8 ppts

– But health, family circumstances, and reaching state pension age (among other things) also matter

• Some recent policy changes have had a significant effect on employment rates

– Reforms to disability-related benefits (though no evidence yet on the most recent reforms)

– Increasing female state pension age


References

• Banks, Blundell, Bozio and Emmerson (2011), “Disability, health and retirement in the United Kingdom”, IFS Working Paper, W11/12, http://www.ifs.org.uk/publications/5643

• Banks, Blundell and Emmerson (2012), “Pathways for changes in hours worked at older ages: the role of within-job and between-job changes”, mimeo

• Banks, Emmerson and Tetlow (2014), “Effect of pensions and disability benefits on retirement in the UK”, NBER Working Paper, No. 19907, http://www.ifs.org.uk/publications/7179

• Cribb, Emmerson and Tetlow (2013), “Incentives, shocks or signals: labour supply effects of increasing the female state pension age in the UK”, IFS Working Paper, W13/03, http://www.ifs.org.uk/publications/6622


Shifting into the lean and slippered pantaloon? …...2014/05/20 · pantaloon? Employment in the...

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